Key Trends 2008 Human Capital

Human Resource Services PwC Saratoga Managing people in a changing world* Key trends in human capital A global perspective – 2008

Human Resource Services Saratoga Contents Preface 2 Executive summary 3 Background and methodology 4 1. Human capital impact 6 • Financial performance • Added-value performance • Productivity performance • Commercial metrics • Outsourcing and offshoring • Mergers and acquisitions 2. Human capital drivers 16 • Leadership • Engagement • Talent management and learning • Innovation 3. Human capital foundations 24 • Demographics • Diversity • Work-life balance • Wellness 4. Human capital futures 32 • Corporate reporting • Risk management • Established generic metrics 5. The HR function 35 • HR function • HR reputation • Shared services Conclusion 40 Acknowledgements 41 References 42 Contact us 44 Key trends in human capital 1

Human Resource Services PwC Saratoga Preface Maximising the value of organisational resources has never been more challenging. Now, more than ever is the time for innovation and creativity. Keeping a watchful eye on the turbulent world economy and responding effectively is critical to sustainable business success. This third edition of Key trends in human For ease of reference, the report data is capital builds on the critical issues that we organised within five key headings containing have identified in earlier years, and introduces specific trends that are closely interrelated. new developments that we consider should In summary, they are: be of major interest to all executives involved Human capital impact – these constitute in people management. major bottom line trends which have The work is primarily based on data collected measurable financial results. They all contain from PricewaterhouseCoopers Saratoga’s critical elements of human capital input and human capital database across Europe, Asia, reflect the real impact people are having on Africa and the Americas. It is supplemented by the organisation. secondary sources, such as findings from the Human capital drivers – we have identified PricewaterhouseCoopers 10th and 11th global a limited number of trends which will CEO surveys of 1,150 CEOs, and representing largely influence the impact people have industry sectors including banking, financial on their organisation. They are the real services, manufacturing, telecommunications, drivers of performance. chemicals, IT, utilities and retail. While the public sector is represented by a relatively small Human capital foundations – these are sample of organisations, we are confident from background people trends, often affected our work in this area that the majority of the by demographic or social movements that Richard Phelps, Global lead partner, trends identified are highly relevant to their are already influencing both the way an current challenges. organisation manages its people and the way Human Resource Management, those people respond to that management as PricewaterhouseCoopers Whilst this year’s report builds upon earlier part of today’s sustainability agenda. publications, it includes further supplementary information from a wide range of additional Human capital futures – we have identified regions. Reporting on developments in these a limited number of issues that are clearly economies demonstrates the increasing global affecting organisational thinking and are likely appetite for human capital information as a to grow in importance. tool to help promote sustainable economic performance. The HR function – we have once again reviewed the emerging structures and roles Unlike many other human capital reports, of the function which is an ongoing issue in we place particular focus upon financial results human capital management. and their direct relationship with human capital performance. It is our view that all human Above all, we intend this report to provide capital policies and processes should directly practical guidance to human capital relate to the sustainable business performance practitioners. We are concerned not with and financial objectives of the organisation. providing a merely encyclopaedic analysis of It is the only way people will be given the human capital activity across the globe, but recognition and status that their contribution with identifying a limited number of key issues deserves. In the past, human capital issues that will have a significant effect upon an have all too often been treated as ‘resource organisation’s future success, in order to absorbing’, rather than ‘value adding’, business provide insight into where your management investments. However, they require the attention should focus. application of the same disciplines to assess We look forward to sharing the results of the value of their return as any other investment this report with you, our future human capital decision. Increasingly, CEOs, shareholders, studies, and to continuing our dialogue on analysts and others are likely to demand more this topic. rigorous financial assessments. Richard Phelps 2 Key trends in human capital

Human Resource Services Saratoga Executive summary A prime finding of this 2008 report is the growing recognition on a global basis of the undeniably critical role that human capital plays in the sustainability of organisations in all sectors of business and community related activity. As the globalisation of business and networks continue to gather momentum, all economies, Demographic trends, diversity, work-life balance and wellness are having a real influence ‘There are a limited whatever level of maturity they have reached, are recognising their dependence on the people upon the sustainability strategies for people management in organisations. Successful number of human capital aspects of their strategies to leverage success. organisations will claim to gain advantage from drivers that will have the This report raises a range of issues, key positive, proactive policies related to all these trends, suggesting that progressive employment most significant influence messages and implications for all those responsible for human capital management practices correlate with successful enterprise. Others may claim that success simply makes upon organisational in the immediate future. In summary they are as follows: it easier to introduce such policies. performance in the Human capital impact – there is a new Human capital futures – we have identified years immediately a limited number of organisational activities global business landscape. Asia, Central & Eastern Europe, Brazil, Indonesia, Mexico and that have strong human capital content and ahead. They constitute Turkey are challenging the mature economies a broader organisational context. Corporate reporting and risk management fall into this leadership, engagement, for dominance. The US and Western Europe are re-establishing a competitive place in the category. Both assume a higher level of human capital prominence as the importance of human talent management and new order, looking for low cost solutions in their outsourcing and offshoring initiatives, capital in overall organisational performance learning and innovation’ gains higher recognition. CEOs, when developing consolidation in mergers and acknowledging that the people agenda is one acquisitions (M&A) activity, and recognising of their main personal objectives, are beginning the need for greater agility in order to respond to include it in the context of other business rapidly to changing customer demands and actions. In PwC’s recent global survey of sudden, unanticipated, financial crises. 1,150 CEOs across 50 countries, 89% of People are critical. However, for Western CEOs agreed that the people agenda is one Europe, levels of productivity, agility of of their top priorities and 67% agreed that it response and innovation continue to lag is where their time would be best spent. behind the US, which itself is struggling The HR function – the future of the function to adapt to the new world. still remains a matter for speculation. With the Human capital drivers – there are a limited establishment of shared service operations to number of human capital drivers that will handle increasing amounts of the traditional have the most significant influence upon transactional HR role, the future of the function organisational performance in the years relies increasingly upon its ability to establish immediately ahead. They constitute leadership, a high level of strategic business presence. To engagement, talent management and learning date it has largely failed to do so. The concept and innovation. They are closely interrelated and of business partnership, as championed by the inability to excel and compete in any single David Ulrich and other HR opinion leaders, is one will result in failure in them all. There is no proving challenging to implement successfully. hard evidence that Western Europe or the US is Furthermore, the growing recognition of the making the progress required in any of these importance of people to sustainable business drivers. There has been much talk, many words success by the majority of surveyed CEOs, written and substantial sums of money spent. suggests that they themselves may be playing To date, the results are largely still awaited. a far more active role in human capital management than previously. Only 43% of Human capital foundations – there are a range CEOs globally in the latest PwC survey agree of people trends of varying intensity in global that their HR function is equipped to handle economies that reflect social and political changes required to compete for talent. pressures as much as organisational policy. Key trends in human capital 3

Human Resource Services PwC Saratoga Background and methodology PricewaterhouseCoopers Saratoga, part of the Human Resource Services advisory practice, has an established track record in providing global human capital benchmarking and measurement studies, and has one of the world’s largest HR consulting businesses and most robust databases of human capital performance measures. ‘The trends discussed PwC Saratoga work with 40% of FTSE 100 and Fortune 500 companies and consider Background to key trends 2008 This report tracks key human capital trends in this report are highly intelligent measurement to be fundamental to performance improvement. Benchmarks through 2006 to early 2008. However, as we relevant to all executives cover a broad spectrum including country produce this report we are highly conscious of the major financial disturbances that are involved in the shaping workforce, size and sector. Data is collected according to strict definitions ensuring occurring across the globe affecting all major business markets. We have therefore studied and management of resultant benchmarks reflect a robust, like-for-like comparison. the early responses to these new challenges human capital within In January 2005 we produced the first Key and commented upon the impacts we believe they are likely to have upon human capital their organisation’ trends in human capital report. It was based on policies and activities in the immediate future. human capital measurement and benchmarking As with our previous studies, the trends work in 2003 and early 2004 in Europe and identified are not always present in every the USA. In May 2006 we revisited the subject, region; sometimes the economies are moving confirming most of the trends we had identified at different speeds and many are at different earlier, indicating at the same time further stages of maturity. In some cases, insufficient important human capital movements which evidence is available for clients to collate appeared to be developing. At the same time the data against the strict definitions and we extended coverage to Asia Pacific and standards we apply. South Africa. Analyses were based primarily upon our own measurement work but also The trends discussed in this report are highly embraced other research conducted by PwC relevant to all executives involved in the shaping or in other organisations that had produced and management of human capital within their relevant papers. The key objectives of our organisation, and those who are responsible for reports have been to identify those trends that prioritising the allocation of resources to key would dominate the human capital agenda for issues. We welcome the continued discussion some years ahead. and dialogue some of our observations and conclusions may provoke. Figure 1a: European database – participants by industry sector Banking 11.6% Insurance 2.8% Life & Pensions 1.5% Finance 5.1% Chemicals 7.2% Eng/Mfg 24.9% IT & Electronics 20.1% Public Sector 2.9% Retail & Leisure 7.7% Services 6.2% Telecoms 5.8% Utilities 4.4% 4 Key trends in human capital 1.8

0 Argentina China Czech Italy South Republic Germany India Japan Sweden Turkey US Korea 2005 2007 2010 2020 2050 Human Resource Services Saratoga China Banking Czech Republic Germany Retail and leisure India Italy Insurance Japan Turkey Life and pensions US South Korea Public Sector Sweden Argentina Methodology This briefing is based upon an all-industry Other finance 0 10 20 30 40 50 60 70 80 90 median. Commercial region, size and sector PwC Saratoga is renowned globally for its can have a major influence upon many metrics work on human capital benchmarking and so where appropriate we include tables that measurement. For some 20 years, it has worked Services detail results by region and sector that reveal with organisations to gather data upon an the strong structural and cultural differences increasing range of closely defined quantitative that continue to pervade European and other and qualitative measures. The information is Chemicals markets. There is solid coverage across interpreted and integrated into the business European nations and the US, including planning process and relevant balanced comparisons for Central and Eastern Europe scorecards. The only results received from Telecoms (C&E Europe). Nearly a quarter of participants organisations that are included in its database are multinational operators, many producing conform exactly to its prescribed definitions. data for multiple countries or business units. We are therefore highly confident that all its data IT and electronics is consistent and usable for comparison and Within this sample, illustrated below, the benchmarking purposes. PwC Saratoga uses an following industry sectors are covered: evidence based consulting approach to human banking, insurance, life and pensions, finance, Utilities capital issues and, where possible, our work is chemicals, engineering/manufacturing, public underpinned by data and trends throughout. sector, IT and electronics, retail and leisure, services, telecoms and utilities. Eng/Mfg This report is based on PwC Saratoga’s global database of human capital performance metrics and other secondary sources. This data has been collected by client organisations 0 10 undertaking measurement and benchmarking % Total female em projects and also from other PwC Saratoga research activities. % Female (Mana % Female (Profes Figure 1b: US database – participants by industry sector Banking 5.4% Insurance 10.1% Finance 4.7% Healthcare 20.2% Chemicals 5.1% Eng/Mfg 11.9% IT & Electronics 7.2% Public Sector 11.6% Retail & Leisure 4.3% Services 4.3% Telecoms 7.6% Utilities 7.6% Key trends in human capital 5

Human Resource Services PwC Saratoga 1. Human capital impact 2005 and 2006 stand out as years when the burgeoning economies of Asia and Central & Eastern Europe consolidated their positions of high revenue growth outpacing the more mature Western economies and offering huge opportunities for inward investment. These years also witnessed the rapid advance of other emerging economies, including Brazil, Russia, Indonesia, Mexico and Turkey which are joining the ranks of high growth centres. The early signs of economic slowdown in than Western Europe (2.0%) and C&E Europe 2004 and 2005, affecting the US and Western (11.0%), and holding a profit per FTE (18.5%) Europe, were partially rebutted in 2006 but in higher than European competitors (12.9%). the latter half of 2007 presents further evidence The complete picture is illustrated in figure 2. of an economic slowdown. Growth throughout The traditional productivity gap formula 2006 gave way in early 2007 to uncertainty (the Conference Board defines productivity and turbulence, with the US in particular here as GDP – see page 11 for further details) encountering waves of internally generated between the US and Europe narrowed during financial pressures. 2005 and 2006 but continued to be significant. US productivity growth in 2006 reduced to Financial performance trends 1.9% from 3.1% in 2005, whilst the enlarged Throughout 2006 and through to mid 2007, European Union registered overall productivity the US remained competitively well placed, growth of 2.8%, bolstered by the new entrants maintaining a higher growth of revenue per Full (EU12), registering 4.6%.1 Time Employee (FTE) (15.2% from 2005 to 2006) Figure 2: Financial trends 2002-2006 % change % change % change 2002 2003 2004 2005 2006 02-06 04-05 05-06 Revenue per FTE (€) UK 129,024 135,888 142,008 146,054 153,194 18.7% 2.8% 4.9% C&E Europe 32,408 51,298 58,796 81,464 90,441 179.1% 38.6% 11.0% Western Europe 145,766 157,187 169,546 173,434 176,955 21.4% 2.3% 2.0% All Europe 134,074 154,315 166,916 172,031 176,298 31.5% 3.1% 2.5% US 218,217 233,332 260,543 228,937 263,689 20.8% -12.1% 15.2% Costs per FTE (€) UK 126,071 134,500 138,999 142,061 147,095 16.7% 2.2% 3.5% C&E Europe 31,837 51,512 55,122 76,384 85,860 169.7% 38.6% 12.4% Western Europe 142,353 153,838 164,152 166,768 168,376 18.3% 1.6% 1.0% All Europe 130,067 150,499 161,989 165,747 167,570 28.8% 2.3% 1.1% US 162,941 171,140 181,481 162,233 169,452 4.0% -10.6% 4.4% Profit per FTE (€) UK 3,112 3,248 3,495 4,062 4,519 45.2% 16.2% 11.2% C&E Europe 302 612 719 2,123 2,724 802.0% 195.3% 28.3% Western Europe 3,696 4,238 4,827 5,586 6,283 70.0% 15.7% 12.5% All Europe 2,926 4,045 4,700 5,520 6,232 113.0% 17.4% 12.9% US 24,631 35,625 55,128 31,571 37,396 51.8% -42.7% 18.5% Source: PwC Saratoga data 6 Key trends in human capital 1 Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, 2008

Human Resource Services Saratoga Over the broad range of human capital financial measures, the US demonstrates impressive high cost social benefits and to maintain their core business base. France and Germany are ‘Nations with comparative performance, placing itself across the mature business economies as best heavily affected, Sweden and Finland are under pressure, whilst the UK has to-date preserved institutionalised social positioned to respond to new and emerging higher levels of workforce flexibility than the benefit programmes competitive challenges. As indicated in previous reports, the US continues to respond more majority of its Western European counterparts. are generally struggling It is predicted by PwC that by 2050 the BRIC quickly and robustly to downturn situations than its European counterparts, possibly due to economies (Brazil, Russia, India and China) plus to gain higher flexibility its highly entrepreneurial culture and heritage. others, such as Indonesia, Mexico and Turkey will outstrip those of the current G7 (US, Japan, to compete against The importance of agility and flexibility in Germany, UK, France, Italy and Canada). aggressive global work force policies and practices becomes Foreign direct investment into these countries increasingly relevant as economies face a continues at a pace likely to continue as they competition’ turbulent period.2 Nations with institutionalised offer lower cost resources, increasingly highly social benefit programmes are generally skilled workforces and, an increasingly struggling to gain higher flexibility to compete aspirational consumer base. against aggressive global competition, to afford Figure 3: Profit per FTE 2003-2006 (€) Figure 4: Profit per FTE (US) (UK, C&E Europe, W Europe & all Europe) 2003-2006 (€) 7,000 7,000 60,000 60,000 300,000 300,000 6,000 6,000 50,000 250,000 50,000 250,000 5,000 5,000 40,000 40,000 200,000 200,000 4,000 4,000 30,000 30,000 150,000 150,000 3,000 3,000 20,000 20,000 100,000 100,000 2,000 2,000 1,000 10,000 10,000 50,000 50,000 1,000 0 0 0 0 0 0 2003 2003 2004 2004 2005 2005 2006 2006 2003 2003 2004 2004 2005 2005 2006 2006 2003 2003 2004 2004 2005 2005 2006 2006 UK UK Western Europe Western Europe US US UK UK All Europe All Europe C&E Europe C&E Europe All Europe All Europe C&E Europe C&E Europe US US Western Europe Western Europe Source: PwC Saratoga data Source: PwC Saratoga data 30 30 23.9% 23.9% 19.7% 20.6% 20.6% 20 20 19.7%18.3% US US 18.3% Key trends in human capital 7 Hours 2 Source: 2004 Report of Convergys Employee Care conducted by the University of Michigan and PwC Saratoga Hours UK UK Europe ern Europe

Human Resource Services PwC Saratoga Figure 5: Revenue per FTE 2003-2006 (€) Figure 6: Costs per FTE 2003-2006 (€) 000 60,000 300,000 300,000 200,000 200,000 000 50,000 250,000 250,000 160,000 160,000 000 40,000 200,000 200,000 120,000 120,000 000 30,000 150,000 150,000 80,000 80,000 000 20,000 100,000 100,000 40,000 40,000 000 10,000 50,000 50,000 0 0 0 0 0 0 2003 2003 2004 2004 2005 2005 2006 2006 2003 2003 2004 2004 2005 2005 2006 2006 2003 2003 2004 2004 2005 2005 2006 2006 US US UK UK All Europe Europe All UK UK All Europe Europe All C&E Europe US C&E Europe US C&E Europe US C&E Europe US Western Europe Western Europe Western Europe Western Europe Source: PwC Saratoga data Source: PwC Saratoga data Added-value performance trends incurring? How many people are we employing? How much are we investing in our reward PwC Saratoga uses a unique methodology, the 30 30 Human Capital Return on Investment (HC ROI), structures? And then critically, how can we improve each element of the ratio to improve to provide a comparative measure of added 23.9% 23.9% value per FTE. HC ROI compares the pre-tax our position against the competition? 19.7% 19.7% 20.6% 20.6% profit generated before employment costs, with PwC Saratoga’s 2006 report showed how 2004 20 18.3% 18.3% 20 the investment in compensation and benefit witnessed a higher performance in the ratio for costs. It is normally presented as follows:- Hours all regions other than the UK which remained Hours static on 1.11, with Western Europe on 1.14 and Revenue – Non-wage costs the US further ahead on 1.52. In 2005 the US 10 10 Number of FTEs x Average remuneration slowdown was reflected in a reduction in the This ratio states how much pre-tax profit ratio to 1.36 with C&E Europe moving to 1.23 or earnings are produced for every unit of and Western Europe recording 1.16. The value currency paid to an employee. In other words, added per FTE based upon the formula 0 50,000 60,000 60,000 70,000 70,000 0 0 for every unit of currency e.g. $, € or £ etc. continued to demonstrate a high differentiation paid to an employee, how much2005 is 2006 2003 2003 2004 2004 2005 2006 profit between the performances of the US and produced. The currency is therefore irrelevant Europe, with the US having a performance some and the ratio facilitates a cross comparison 17.2% above that of Europe. In 2006, Western between different commercial sectors, regions Europe demonstrated minimal improvement or nations. It is a key ratio for all HR executives, over its 2005 performance whilst the US since it covers all the major elements of their improved its own performance by 15.4%, potential contribution. How much revenue exceeding Europe by 34.2%. See figure 7. are we producing? How much cost are we China China na Czech RepublicRepublic Czech blic GermanyGermany 8 Key trends in human capital any India India Italy Italy dia

Human Resource Services Saratoga Figure 7: Human Capital ROI 2002-2006 % change % change % change 2002 2003 2004 2005 2006 02-06 04-05 05-06 Human Capital ROI UK 1.08 1.11 1.11 1.13 1.13 4.7% 1.8% 0.1% 7,000 C&E Europe 1.05 1.10 1.11 1.23 1.25 18.9% 10.8% 1.5% Banking 11.6% Western Europe 1.08 1.13 1.14 1.16 1.17 8.4% 1.8% 0.9% 6,000 Insurance 2.8% All Europe 1.07 1.13 1.14 1.16 1.17 9.4% 1.8% 0.9% Life & Pensions 1.5% 5,000 US Finance 5.1% 1.31 1.42 1.52 1.36 1.57 19.8% -10.5% 15.4% Chemicals Source: PwC Saratoga data 7.2% 4,000 Eng/Mfg 24.9% 3,000 With the & Electronics IT expected higher remuneration levels in 20.1% ability to respond rapidly to changing global Public Sector 2.9% the US (see figure 9) than anywhere in Europe, challenges and to adjust market offerings, 2,000 the superior & Leisure Retail performance of the 7.7% largely US is cost infrastructures and employment levels down to stronger levels of revenue generation to the demands of the time. It is a response Services 6.2% 1,000 combined with stringent control of people costs level which Western Europe has not matched. and numbers. These have been 5.8%term Telecoms long The growth of the new economies will test US advantages enjoyed by the US over its European Utilities 4.4% resilience but observers are already becoming 0 counterparts, due in part to its advanced aware of the US developing rapprochement 2003 progress in information and communication strategies of “collaboration to assess and technology, but also its more developed mitigate risk, and their advanced positioning UK competitive performance related culture. in integrating new organisational capabilities for managing geographically and culturally C&E Eu The key to the superior performance of the diverse organisations.” 3 US over a number of decades has been its Figure 8: Human Capital ROI 2002-2006 1.8 1.5 1.2 US 0.9 UK Western Europe 0.6 C&E Europe 0.3 All Europe 0 10,000 0.0 UK C&E Europe Western Europe All Europe US 2002 2003 2004 2005 2006 Source: PwC Saratoga data 3 Source PwC “Collaborate and Innovate: a new world of sourcing”, 2007 Key trends in human capital 9 80

5,000 40,000 4,000 Human Resource Services 30,000 PwC Saratoga 3,000 20,000 2,000 1,000 10,000 0 0 2003 2004 2005 2006 2003 2004 2005 UK Western Europe US C&E Europe All Europe ‘High revenue growth Figure 9: Average remuneration per employee 2006 (€) accompanied by high remuneration US UK is a sustainable Western Europe success formula, C&E Europe providing revenues All Europe continue upwards’ 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 All Europe US Source: PwC Saratoga data 2005 2006 Productivity performance trends profits against total remuneration – in other words whether the employment costs are By using the metrics of Remuneration/Revenue actually producing profit for the organisation. and Remuneration/Total Costs, it is possible to Productivity metrics look at the relationship establish whether organisations are maintaining of employee remuneration (i.e. inputs) against a sustainable relationship and levels of the amount of revenue produced (outputs) competitiveness between their people costs and the relationship of those employee costs and the outputs they produce. Whereas China to the total costs of the business. added-value metrics demonstrate the relationship of profits to employee remuneration, Czech Republic The following table shows that in 2006, Western productivity metrics look at the relationship Europe held a 21.7% level, whilst C&E Europe Germany of remuneration to total revenues and costs. moved to 13.3%. Meanwhile the US moved PwC Saratoga looks at the added-value metrics upwards fromIndia in 2005 to 29.8% in 2006. 29.3% to measure the relationship between pre-tax Italy Japan Figure 10: Remuneration/revenue 2002-2006 (%) Turkey % change % change % change 2002 2003 2004 2005 2006 02-06 US 04-05 05-06 UK 24.7 23.9 24.1 24.0 25.0 South Korea 1.2% -0.4% 4.1% C&E Europe 17.5 15.1 14.6 12.7 13.3 Sweden -23.9% -13.0% 4.8% Western Europe 23.0 21.8 22.2 21.8 21.7 Argentina -5.5% -1.8% -0.3% All Europe 22.6 21.6 21.6 21.6 21.6 -4.3% 0.0% 0.1% South -0.2 0.0 0.2 0.4 0.6 0.8 ndia USItaly Japan Korea 24.1 Sweden 26.1 Turkey US 28.0 29.3 29.8 23.7% 4.6% 1.7% 020 2050 Source: PwC Saratoga data Banking Retail and leisure 10 Key trends in human capital Insurance

Human Resource Services Saratoga These remain critical metrics in any assessment Figure 11: GDP 2006 of human capital effectiveness. In a healthy economy it would be expected that GDP per GDP per Person Growth in GDP Growth in GDP remuneration would move either at a lower rate Hour (€) Employed (€) per Hour per Employed or similar rate as revenue growth for human Country 2006 2006 2005/06 2005/06 capital productivity to maintain impetus. Western Europe has been seen to be relatively Australia 22.33 34,042 1.76 2.47 successful at maintaining a stable relationship Austria 25.44 35,446 0.96 3.31 since 2002, whilst C&E Europe have been Belgium 27.34 33,284 1.64 3.17 successful in improving the Remuneration/ Canada 22.32 34,190 1.93 2.76 Revenue ratio even though rises in remuneration Cyprus 15.00 21,109 1.64 3.85 levels have been accelerating. The US has demonstrated a far higher relationship of Czech Republic 9.62 13,098 1.61 6.30 remuneration to revenue since 2002, but has Denmark 24.53 45,628 2.68 3.57 historically enjoyed far higher levels of revenue Estonia 17.50 12,248 5.46 11.19 growth. High revenue growth accompanied by Finland 23.34 35,930 1.71 5.00 high remuneration is a sustainable success France 28.58 32,626 1.10 1.99 formula, providing revenues continue upwards. However, if the US economy continues to slow, Germany 23.55 31,720 0.47 2.87 leading to lower revenue growth, a stronger Greece 15.53 25,608 1.30 4.38 control of remuneration levels will be essential. Hungary 10.50 10,848 0.43 3.89 Iceland 19.68 50,381 5.14 2.80 Commercial metrics Ireland 28.03 47,106 4.12 5.71 The common use of GDP per employee and Italy 23.18 28,309 0.90 1.87 GDP per hours worked as indicators of productivity on a national and regional basis Japan 20.49 27,218 0.92 2.19 correlate closely with our revenue per FTE and Latvia 12.11 9,461 4.30 11.93 costs per FTE metrics (see figure 5 and 6). PwC Lithuania 10.74 8,378 0.89 7.66 Saratoga measures both regional and national Luxembourg 29.25 81,827 5.95 6.17 financial performance, and can also benchmark Malta 15.41 12,839 0.65 3.15 performance across commercial and industrial sectors to give a more specific view of an Mexico 7.39 6,741 2.04 4.93 organisation relative to its nearest competitors. Netherlands 26.03 36,343 3.03 3.01 New Zealand 16.08 23,758 0.82 1.92 Norway 31.73 63,323 2.42 2.13 Poland 9.46 8,686 2.92 6.12 Portugal 13.80 16,532 1.04 1.28 Slovakia 12.85 10,582 1.63 8.27 Slovenia 16.20 17,663 1.19 5.72 South Korea 12.73 15,699 -0.81 4.99 Spain 17.34 25,177 3.74 3.86 Sweden 24.69 37,655 1.23 4.19 Switzerland 21.95 45,369 2.17 3.23 Turkey 10.49 5,238 1.17 6.09 UK 24.10 36,241 0.44 2.84 US 28.23 36,475 1.86 2.87 Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2008 Key trends in human capital 11

Human Resource Services PwC Saratoga Outsourcing and offshoring trends data from the PwC Saratoga database indicates that the proportion of total costs attributable The business rationale behind both outsourcing to outsourcing and offshoring grew from 2.7% and offshoring has changed significantly in in 2004 to 3.1% in 2006. recent years. Originally the drive for both initiatives was focussed upon the financial The Organisation for Economic Co-operation benefits arising from the opportunity created and Development (OECD) believes that as through exporting commoditised transactional many as 20% of all jobs in the US, Australia activities – either from the organisation or from and Canada in addition to the 15 pre-accession high-cost operational regions. In its 11th Global EU member states could be affected by the CEO Survey, PwC reports a marked shift in the international sourcing of labour by service motivation of CEOs to outsource or offshore industries. Perhaps even more significantly from simply “a mechanism to lower cost, Knowledge Process Offshoring (KPO) is to a means of achieving a more strategic, expected to grow significantly over the next few collaborative framework”. At the same time, years. KPO is the process whereby businesses CEOs report an increasing trend to expand the outsource high end knowledge or judgement scope of activity that is covered by outsourcing services such as, research, sales and marketing, arrangements, from the traditional component case writing and even animation design. supplies and IT infrastructure to other activities that, in the past, were held sacrosanct including Evalueserve predict that KPO will grow to HR management, R&D and even marketing and $16.7 billion in revenue by 2010 – 2011, sales. This willingness to allow normally tightly implying an annual growth rate of 39%, protected activities to migrate outside the employing some 390,000 professionals by company is a convincing signal of the degree March 2011. Interestingly the major reason to which the nature of outsourcing is changing. for this huge growth is the vast pool of educated and experienced professionals Furthermore, a new concept of “Connected available. Areas such as India, China, Russia, Sourcing” is emerging which primarily sees Poland, the Philippines, Hungary and many organisations focussing harder upon those republics from the former Soviet Union provide things they do best and then “orchestrating a high levels of skills at comparatively low portfolio of relationships” with third parties for cost, and fill critical skill gaps increasingly the rest. Collaboration with a range of external experienced by western economies.5 suppliers to provide solutions to complex issues will increasingly require higher levels of All the above factors have moved the “transparency, trustworthiness and reciprocity”.4 integration of services upwards. Increasingly, call centres in major corporates comprise Outsourcing is clearly a strategy that has been multi-disciplined teams, providing both widely accepted by global companies and that employees and customers with answers to acceptance is growing. According to a 2003 a cross-section of problems and introducing survey conducted by Forrester Research Inc., them to other services which are on offer. just 40% of Fortune 1,000 companies had either offshored or outsourced any business. However, areas of concern continue to exist. However, in 2006, a subsequent study They continue to include questions involving published by the India Institute of Management management control, service quality, depth (IIM) indicated that 55% of Fortune 1,000 of labour pools and customer service issues companies now sourced service activities caused by diversity of cultural values. from other countries. According to PwC’s 10th For example, India despite its high output of Global CEO Survey “this dramatic increase graduates per annum, still struggles to satisfy can mean only one thing, the global impact of its own and internal investors’ demands for outsourcing is rising and rising fast”. In addition, skilled resource. 4 Source: PwC “Collaborate and Innovate a new world of sourcing”, 2007 12 Key trends in human capital 5 Source: Evalueserve, the growth and future of Knowledge Process Offshoring industry, 2007

Human Resource Services Saratoga People – human capital – remain at the core of outsourcing/offshoring decisions. Access think are the biggest threats to business growth, CEOs regularly put the availability of key ‘Innovation is often to cohesive business processes may tempt organisations to move a functional activity skills at the top of the list. Thirty-four percent of all CEOs also say that poor management the first casualty of offshore, however, it is the relative cost of of human resources is a source of anxiety, integration. Due to labour and skills availability that are the overwhelmingly dominant factors. Both while 30% are concerned about conflicting workforce expectations. today’s competitive advantages are of course likely to reduce over time, as labour rates are pressurised upwards However, M&A activity moves an organisation deal environment, and skills become dispersed across the broad out of the sphere of business as usual. In fact, it is the ability of an organisation to adapt to CEOs are often forced business world. For the foreseeable future however, the advantages are clearly identifiable. change that concerns 75% of surveyed CEOs. to give away the value The requirement of success in future M&A work Few organisations have sufficient trust in demographic profiling to forsake opportunities will firstly be that the strategy is viable, but of the cost synergies that are likely to provide significant short-term more importantly, that the impetus of change and innovation is maintained. Barriers to of a merger in the bid’ performance advantages. change are clearly people related (see figure 12). Even the most common sense merger or Merger and acquisition trends acquisition in the business world will fail or at PwC’s 11th Global CEO Survey 2008, shows best disappoint, unless the people involved are around half of companies with $10 billion brought on board and managed as a key part of or more in revenues have completed a the process. There is clearly a vital role for HR cross-border M&A in the past 12 months. professionals to play in these transactions. Organisations are now balancing their efforts between ‘business as usual’ and integration Innovation is often the first casualty of activities. In the immediate future, hardened integration. Due to today’s competitive deal global business conditions may have a environment, CEOs are often forced to give reductive effect upon the number of deals away the value of the cost synergies of a and the extent of M&A activity. However, merger in the bid. Added value can therefore globalisation is almost certain to demand higher often only come from achieving future revenue levels of resource and structural consolidation, synergies. Some of these benefits may come leading to an inevitable explosion of activity from a widened product or customer base, in this business dimension in the years ahead. but a key driver of revenue growth will be In China, for example, employment matters innovation, which is highly dependent upon have traditionally taken a back seat in M&A people. The dilemma for top management is deals. However, the New Labour Contract that the rigorous discipline needed to deliver on Law introduced in January 2008 will ensure those already committed cost economies can these are given more form and substance to demotivate people and stifle the organisation’s enhance the legal protection of employees’ ability to innovate. In such circumstances, the rights and combat potential exploitation.6 retention and integration of identified talent is a critical success factor. No matter how astute It is now widely accepted that people and the merger or acquisition may be, the loss of cultural factors constitute major obstacles key talent following the completion of the deal to the realisation of value gain that any M&A has often proved to be disastrous, leaving only aims to achieve. More than 50% of the CEOs the existing product or service and its technical surveyed worry about handling cultural conflicts or structural alignment with the acquired or the and capturing the value of the deals they acquirer to produce value gain. undertake. In addition, when asked what they 6 Source: Providing Better Clarity, PwC, 2007 Key trends in human capital 13

Human Resource Services PwC Saratoga ‘CEOs say that Management stretch is an important aspect of talent management which may potentially stress, lack of clear direction, and burn-out), management of staff and resistance to it is difficult to find affect an organisation’s ability to successfully expand. As companies grow, the constraints change from employees. So often in post-deal environments, the focus of the people (whether people with the on human resources, specifically at the working in the deal team or impacted by the right combination management level, become tighter. CEOs say that it is difficult to find people with the right change) is on integration following the deal, rather than on the core strengths and growth of technical and combination of technical and commercial skills. Leaders and all-around performers targets of the business. Integration teams must consider and address these barriers early to commercial skills’ prove hardest to find, and senior or middle enable the delicate balance of business as management weaknesses are blamed most usual and a successful integration. This will often for hindering change programmes. help organisations prepare for continued In addition, the number of people who have innovation, retention of key talent, and the experience of doing deals is only about 10% development of a qualified management pool. of the management population. Organisations need to develop a pool of managers who are Key trend messages globally aware and have skills relevant for This section has dealt with financial performance dealing with the M&A environment, such as the through human capital metrics. It has focussed integration and technical skills to mitigate risks. attention upon a series of key metrics which As illustrated in figure 12, these barriers were will be useful to any organisation in an enviable identified as competing resources (which can “business as usual state”. It is also relevant to have a negative business impact caused by those seeking opportunities to globalise their operations and structures via outsourcing and offshoring actions, and those who will Figure 12: Top barriers to change increasingly become involved in M&A activity. Percentage of • The new economies of Asia and C&E Top 10 Barriers Europe are strongly challenging the mature companies economies of the US and Western Europe Competing resources 48% in the majority of markets. Furthermore, Functional boundaries 44% the BRIC economies, plus others such as Change skills 42% Indonesia, Mexico and Turkey will outstrip G7 by 2050. Middle management 38% • PwC Saratoga’s 2006 report stated that Long IT lead times 35% the US was in a better position in terms Communication 34% of Revenue/FTE and Profit/FTE compared with European competitors. This is still Employee opposition 33% true, however whilst the gap between both People issues 32% economies is reducing, it is still significant (Europe is being strengthened by new Initiative fatigue 32% entrants). Although the US may currently Unrealistic timetables 31% be experiencing a slow down, it is still able to respond more quickly to competitive Source: PwC survey focusing on large change projects in challenges than its European counterparts, 500 multinational and public sector companies covering all as stated in the previous section. industry sectors in North America, Europe and Asia. 14 Key trends in human capital

Human Resource Services Saratoga • In 2004, the UK’s HC ROI remained static at In such an environment, human capital 1.11, whereas C&E Europe and the US were practitioners will need to be comfortable with on the rise, with the US further ahead. In numbers, apply increasingly sophisticated 2005, economic slowdown in the US meant measurement to all human capital activity, the US HC ROI dropped and European HC forecast and assess the ROI of actions taken, ROI increased. However the gap between and concern themselves primarily with the US & Europe still remains. In 2006, there initiatives that have a direct impact on the was no improvement in Western Europe, bottom line performance of the organisation. whereas the US experienced a further If people are now recognised to be a key increase in HC ROI, further widening the gap. contributor to an organisation’s competitive • Although remuneration is extremely high performance, then human capital practitioners in the US, it has undergone stronger will need to be the initiators of change, advantages in terms of performance due seeking low cost solutions across the globe, to high revenue production and stringent establishing where appropriate skills and controls over people costs and numbers. talent are most available, incentivising people (third parties as well as employees) to work • The future competitive advantage the mature more effectively, and continuously encouraging economies should seek to exploit is in the constructive dissent with the status quo. realm of know-how, innovation and services. Existing policies which offer comfort and reassurance to established staff will need Human capital impact implications to be revisited where they no longer deliver It is apparent once again that the most the effectiveness to the sustainable business important challenge facing human capital model the organisation now requires. practitioners is the competitive positioning of their organisation. That competitive positioning is strongly influenced by its measurable productivity performance as it affects bottom line performance. It is the requirement to drive that performance continuously upwards that should dominate the human capital agenda. All human capital policies should be able to demonstrate their positive, measurable contribution to higher levels of people efficiency and effectiveness. The implications of all these impact issues are considerable. Structures and policies designed with agility in mind will need to be accommodated and addressed by HR functions. It becomes possible to imagine the vision of a network of people and organisations from varied cultural backgrounds, seeking diverse employment relationships, with often limited knowledge of, or even interest in, any identifiable parental corporate image. Key trends in human capital 15

Human Resource Services PwC Saratoga 2. Human capital drivers We considered that this report would be more useful to human capital practitioners if we were to lead with the critical trends that we believe will dominate the next two to three years of organisational activity. They are: Leadership Forecast 2005-2006 stated that three in ten leaders fail to demonstrate the 1. Leadership key qualities necessary for effective leadership, 2. Engagement and PwC records in its recent Managing tomorrow’s people report that “globalisation 3. Talent management and learning has led to a need for global leaders in a 4. Innovation commercial world when there are not enough people with sufficient skills”. PwC Saratoga These trends are interdependent. has little evidence in any field of organisational Effective leadership is essential to gain the activity be it commercial, public or political, full engagement of employees and others. that the quality of leadership is developing at Engagement is essential if talent is to be the pace required by the rapidly changing, attracted and retained, and it is specific globalised and networked world. talent and skills that will contribute to the development of innovatory breakthroughs Over many years, PwC Saratoga has to produce essential competitive results. consistently set out to measure the impact of human capital investment. Therefore with Leadership trends leadership, it has been concerned with measuring the impact of effective leadership The leadership issue remains at the top of the upon the people they are supposed to lead, human capital agenda where it has been for rather than the characteristics and behaviours the last decade. Countless books, articles and of effective leaders. PwC Saratoga measures seminars are still produced on the subject. the effectiveness of leadership through an There is no indication that the preoccupation is index of metrics, evaluating business or diminishing, and it is probable that a tightened organisational impact (value and wealth global business environment will produce even creation), follower performance (stay ability greater demands for enhanced leadership skills. and productive outputs), talent and skill Leadership has been defined in various ways development (levels of internal promotion but it is essentially the ability to influence people and development actions) and corporate to work effectively towards the achievement social responsibility actions (diversity and of an organisation’s goals. Leadership in the community related initiatives). The index 21st century is increasingly seen as a shared compares generic leadership performance responsibility and not the domain of a single across organisations either operating in the person. Effective leadership emerges through same sector or in diverse sectors. the key players of an organisation, who are PwC Saratoga takes the view that if the committed to its purpose and competent to do leadership of an organisation is effective what it takes to deliver the ‘followership’ to then its comparative positioning against make it happen. its competition would be superior, and There is limited evidence that the significant if leadership effectiveness is improving sums invested in leadership development (possibly via leadership development programmes are delivering value for money. programmes) then its periodic movement in The CIPD report UK Global Comparisons these metrics should be measurably positive. 16 Key trends in human capital

Human Resource Services Saratoga The evidence overall in 2006 against A selected number of relevant metrics are performance in 2005 indicates a marginal produced in figure 13, indicating changes in improvement in most of the metrics utilised. overall performance across Europe between However, few demonstrate a consistency 2003 and 2006. It has to be stressed that of improvement significance from 2003 to these figures are produced for illustrative 2006 which would suggest that leadership purposes only, and are generic European effectiveness is increasing either in relation to metrics. To gain major benefit from the use the investment made annually, or at the pace of the PwC Saratoga Index, we suggest which socio-economic challenges demand. interested parties consult a sector, national Again we believe that these results should raise or selected competitor comparison sample questions concerning the effectiveness of much of organisations, and then to track progress of the leadership development investment that over an appropriate time period. is currently taking place at this time. Figure 13: Leadership metrics – Europe 2003-2006 % change % change % change 2003 2004 2005 25th 2006 75th 04 and 05 05 and 06 03 and 06 median median median percentile median percentile median median median Impacts Human capital ROI 1.13 1.14 1.16 1.02 1.17 1.41 1.8% 0.9% 3.5% Wealth created per FTE (€) -803 -494 -128 -2,523 35 2,537 74.1% 127.0% 104.3% Behaviours Resignation rate (%) 6.2 6.2 10.0 4.1 8.8 15.7 61.3% -11.7% 42.4% Remuneration/revenue (%) 21.6 21.6 21.6 12.9 21.0 31.7 0.0% -2.8% -2.8% Skills Training hours per FTE 23.9 19.7 18.3 8.9 20.6 33.3 -7.1% 12.6% -13.8% Career Path Ratio (%) 50.0 50.0 66.7 36.1 62.7 100.0 33.3% -5.9% 25.5% Corporate social responsibilty Workforce diversity: Women (%) 39.2 36.3 33.4 22.8 40.5 56.8 -8.0% 21.3% 3.4% Source: PwC Saratoga data Key trends in human capital 17

Human Resource Services PwC Saratoga ‘Research has shown Engagement trends recently pointed out in his Financial Times article, Recruitment: When engagement Employers over recent years have demonstrated a link between a increasing interest in the engagement of their doesn’t lead to a wedding, levels of employee engagement are beginning to be perceived highly engaged workforces. Engagement has been defined in a variety of ways. The Conference Board sees among some investors as important indicators workforce and bottom it as, “a heightened emotional and intellectual of a company’s financial health, and longer term sustainability. connection with a job, organisation, manager line results, and the or co-workers” and the influences that such Despite the fact that employers are beginning to close relationship a connection brings “to apply additional discretionary effort to his or her work”.7 For the grasp the importance of employee engagement, a survey carried out by the CIPD in 2006 How between employee purposes of this report, we define an engaged employee as one who will do all that he or she Engaged are British Employees? found that only 3 in 10 employees are engaged with their work. engagement and can to deliver the requirements of the employer However, the findings of numerous studies – and more. customer satisfaction’ differ dependent upon the definitions adopted, the size of the organisations involved and the Engagement is currently a popular management levels of employees surveyed and even the topic. Research has shown a link between a length of service of the employees themselves. highly engaged workforce and bottom line results, and the close relationship between Part of the work undertaken by PwC Saratoga employee engagement and customer has been measuring the impact of levels satisfaction. It is rare indeed these days to of employee engagement, and linking this meet any organisation that is not highly to bottom line organisation performance. customer aware. The theory however continues We have used the model below as a basis to outdistance the practice. High levels of for understanding the complex elements of customer service normally requires higher levels reviewing employee engagement, and for of employee discretion, which in turn requires identifying some of the key quantitative metrics higher levels of employee trust and engagement and qualitative survey tools that might be at the very time when employee error can lead appropriate to a given organisational setting. to costly repercussion. As Richard Donkin Figure 14: Employee engagement Behaviour Organisational Activity Type Commitment Work Product Service Identity High Output and Innovation and Engagement Limitless Goal Identity Flexibility Improvement Contractual Change Cooperation Normal Output Learning/Seeking Attendance Positive Effort Compliance Clock Watching Skill Static Critical Joking Bargaining Added Pay Change Discordance Time Wasting Fiddling Creation Resistant Negative Withdrawal Absence More-for-Same Pilferage Contention Oppositional Hostility Resignations Sabotage Theft Solidarity Source: Adapted from original research by Stephen Ackroyd and Paul Thompson 18 Key trends in human capital 7 Source: the Conference Board – Employee Engagement, a Review of Current Research and Its Implications, 2006

Human Resource Services Saratoga PwC Saratoga has developed a series of The metrics provide evidence on dimensions of metrics following the work undertaken by employee engagement, including known drivers Professor Stephen Ackroyd of Lancaster (e.g. reward; learning & development) and the Business School which sets out to assess outcomes from high / low levels of engagement engagement, not by just what people say, (e.g. absenteeism, resignation levels and but by their actions and their behaviours productivity). In combination, these metrics aim (see figure 14). Using a series of PwC Saratoga to quantify the outcomes of HR policies and metrics, it is possible to plot the level of practices and management effectiveness and engagement or disengagement for a working their impact on the positioning of employees. group, or even an entire workforce, through their actions and behaviours (see figure 15). Figure 15: Engagement metrics – Europe 2003-2006 % change % change % change 2003 2004 2005 25th 2006 75th 04 and 05 05 and 06 03 and 06 median median median percentile median percentile median median median Time Resignation rate (%) 6.2 6.2 10.0 4.1 8.8 15.7 61.3% -12.0% 41.9% Absence rate (%) 3.9 3.7 4.0 2.5 3.8 5.2 8.1% -5.0% -2.6% Remuneration/revenue (%) 21.6 21.6 21.6 12.9 21.0 31.7 0.0% -2.8% -2.8% Work w Performance related pay (%) 5.2 6.5 8.1 6.2 12.4 16.9 24.6% 53.1% 138.5% Attendance related pay (%) 3.1 2.3 2.6 1.0 2.9 5.8 13.0% 11.5% -6.5% Product/service Training hours per FTE 23.9 19.7 18.3 8.9 20.6 33.3 -7.1% 12.6% -13.8% Learning Coverage (%) 67.1 57.2 61.7 32.0 68.0 95.0 7.9% 10.2% 1.3% Development hours per FTE 7.9 5.5 5.6 1.9 5.3 10.6 1.8% -5.4% -32.9% Identity Grievance rate per 2.6 2.4 2.9 1.4 2.9 5.4 20.8% 0.0% 11.5% 1,000 employees (%) Source: PwC Saratoga data Key trends in human capital 19

Human Resource Services PwC Saratoga Gaining and maintaining employee engagement investment in emerging markets, and a is a long-term investment, requiring sensitive shortage of talented human capital required leadership and a high degree of respect to successfully manage growth. In addition, for individual motivation. Understanding that there is the increasing challenge of identifying high levels of employee engagement can talented individuals who are willing to take make a significant difference is a useful first international assignments and the struggle step for human capital practitioners putting of retaining them following its completion. in place programmes or systems that have A PwC survey showed that two-thirds of a measurable and real impact upon existing expatriates are not content with the repatriation levels of engagement. approach of their firms and up to 75% of expatriates consider leaving their employer, Talent management either during or after their work abroad.8 and learning trends The 11th PwC Global CEO Survey found that Managing talent effectively is a competitive 62% of organisations believe that to compete necessity. Filling your critical roles with for talent they need to change the way they competent and committed people every time, recruit, motivate and develop their employees. all the time, provides a performance edge 78% of business leaders in Latin America that is essential for sustainable success. believe that changing the way they compete PwC’s 10th Global CEO Survey defines for talent is by redefining roles within the talent management as ‘attracting, retaining, organisation while, in contrast, only 63% in C&E developing and promoting outstanding talent’. Europe feel the same way. More organisations seem to be looking externally for their talent Talent management has been a key human with fewer organisations filling management capital trend for the last decade. The War for positions with internal candidates (58.1% were Talent, popularised by McKinsey, has gained filled internally in 2004 while 50.0% were filled significant momentum. There has certainly internally in 2006).9 been a very high level of talent acquisition over the last ten years as external recruitment At least a decade after the War for Talent was and search activity has flourished, but there identified, there continues to be significant is very limited evidence on a global basis that identification with the issue, but little evidence talent identification, acquisition, retention, that many organisations have effective talent development or leverage is taking place in a management systems in place. The problem is disciplined manner. not understanding or articulating what the talent issue is. The crux of the matter is that it lies, Joseph Bower reports in the November 2007 like so many other complex management Harvard Business Review as follows:- “I was challenges, in the practice. appalled to learn recently that 60% of the respondents to a poll of 1,380 HR directors of This is reflected in the PwC 11th CEO Global large US companies said their firms had no Survey results which showed that only 43% CEO succession plans in place. As this finding of CEOs believed their HR organisation is suggests, too many companies have over the equipped to deal with any change required to last two decades ignored the hard work of compete for talent. building future leaders, while senior executives PwC Saratoga has developed a talent have focused increasingly on meeting the next measurement index that provides both quarter’s earnings target.” an internal audit trail of the impact of talent Also fuelling this realisation of the need to management actions, and an external improve talent management is the growth of benchmarking reading of how an organisation’s 8 Source: Measuring the Value, PwC, 2006 20 Key trends in human capital 9 Source: Talent and Impact, PwC, 2007

Human Resource Services Saratoga talent management compares with the competition. It offers a range of metrics to how the talent management strategy is connected with the HR and business strategy. ‘When vacancies arise enable organisations to benchmark the 60,000 performance of their own talent management 300,000 PwC Saratoga allies talent management in key positions, the 200,000 systems by looking at measuring identification, 50,000 effectiveness with the level of learning activity. Organisations which are active in promoting 250,000 Talent Measurement attraction, retention, development and leverage of talent. Key themes identified by the Talent learning normally demonstrate the most Index found that less 160,000 disciplined and successful talent management Measurement Index are as follows: 40,000 200,000 and pivotal performer systems. than 50% are filled 120,000 • On average, 4% of identified talent tender 30,000 their resignation over a given year The level of formal learning that took place in 150,000 by identified internal • 25% of top talent (i.e. executive level) Europe in 2006 through to 2007 stood at 20.6 hours down from 23.9 in 2003 but rising from successors’ 80,000 are represented by women 18.3 in 2005 (see figure 16). Even so, the 20,000 100,000 • When vacancies arise in key positions, amount of formal learning and development the Talent Measurement Index found recorded for the average employee across 40,000 10,000 that less than 50% are filled by identified 50,000 Europe per annum amounts to less than four internal successors days in a year, with development learning • 0 Most organisations actively demonstrate (i.e. training preparing individuals for the next 0 0 speed to value of their2005 by 2006 talent promotion position) comprising a recorded 5.3 hours. 2003 2004 2003 2004 2005 2006 2003 2004 2005 2006 through the talent pipeline i.e. measuring The level of learning and development the proportion of talent that has progressed investment in Europe reached €302.78 per FTE US UK All Europe in 2006. Finally, the proportion of employees UK All Europe up a level over a given 12 month period. receiving at least one day’s learning US C&E Europe and C&E Europe US An important new trend identified by PwC development experience in the given period fell Saratoga research is the move away from Western Europe Western Europe from 67.1% in 2003 down to 60% in 2006. the identification of high performers and high flyers, towards the identification of “pivotal employees”. These are segments of the Figure 16: L&D hours per FTE – workforce that are expected to create value Europe 2003-2006 and determine the success of the organisation. They can range from the receptionist to the 30 sales director. Whereas high performers may break the mould of an organisation’s direction, 23.9% pivotal performers set the standards that ensure the sustainability of the existing 19.7% 20.6% 20 18.3% business. This employee group always plays Hours a disproportionate role in creating company value and success. Furthermore, there is a real and growing 10 challenge of the ability of organisations to ensure a sustainable leadership pipeline in light of external population demographics and ageing 50,000 leadership, as discussed in the demographic 60,000 70,000 0 section on page 24. Part of the challenge also 2003 2004 2005 2006 relates to having a firm definition of what talent means in an organisation i.e. talent pools, Source: PwC Saratoga data emerging talent, succession, key positions and China Czech Republic a Germany c Key trends in human capital 21 ny India Italy a

Human Resource Services PwC Saratoga ‘The ability of an Obviously, none of these figures provide any measure of the quality of learning and other factors that finance is made available and that time is provided to both individuals organisation to innovate development programs provided, or the ROI of specified activities. Nor are these and teams to develop ideas. In this respect, the allocation and decision criteria for R&D remains one of the metrics able to reflect the level of on-line spend, remains relevant. It is the outputs of major contributors learning and development that is increasingly undertaken. However, real questions remain R&D that matter i.e. patents, products, services etc, however, the spend itself is an important to its continued since it is rare to find any organisation generous in on-line learning activity that metric for identifying the real importance placed by the organisation upon innovation. sustainable economic does not also invest heavily in formal In 2006 through to 2007, global R&D intensity learning and development programmes. performance. Innovation (R&D expenditure as a proportion of sales) has remained broadly constant at 3.5%. cannot of course be Innovation trends More than 81% of global R&D occurs in five The ability of an organisation to innovate viewed in isolation’ remains one of the major contributors to its countries: USA, Japan, Germany, France and the UK. Europe accounted for 33% of the top continued sustainable economic performance. global 1250 company’s share of R&D for 2006. Innovation cannot of course be viewed in isolation. The ability of an organisation to The latest Government R&D scorecard produce the innovation essential to remain uses a measure of R&D as a percentage of competitive will depend upon a range of other revenue. Figures from the 2006 report show actions it is undertaking, including its leadership the comparative level of investments in development, its talent bank, the engagement R&D across the world’s major economies. of its employees, plus the infrastructures it has Companies in Belgium, Switzerland, South in place for exploring new customer offerings. Korea, Italy and Taiwan stand out as having increased their R&D by more than 20% over The characteristics of a successful organisation the average of the previous years. in the years ahead have recently been seen to cover: agility – the ability to respond quickly to Key trend messages changing needs; customer focus – putting the • Despite a high level of focus, evidence customer at the centre of the organisation; and indicates little improvement in generic innovation – ability to innovate and spot new leadership skills in most organisations market opportunities. In a sense, the only despite significant investment in learning innovation that really counts, is that which meets and development over many years. defined customer needs and is agile enough to change direction when those needs change. • Research points towards a close Understanding where others stand against your relationship between high employee own organisation’s ability to innovate effectively engagement and bottom line results. is a key indicator of future sustainability. However, there is little evidence that workforces are becoming more engaged PwC Saratoga has developed a series of with their employers. The problem is metrics that seek to identify not only how far further exacerbated through the growing an organisation has established the capacity complexity of workforce structure with to support innovation i.e. the supporting wide geographic dispersion, high third infrastructure, but also the extent to which party involvement and multi-cultural an organisation fosters the appropriate culture working environments. for innovation to take place i.e. “shared • Talent management is identified as a top experimentation”. The two dimensions issue by a high number of CEOs worldwide. provide a balanced perception of innovation Most, however, consider that insufficient competitiveness. progress is being made in the identification, Like many of the other trends identified in attraction, development and retention of this report, innovatory performance will not talent. There is a growing belief that new be achieved unless a disciplined system of talent management strategies are required. investment is established, ensuring among 22 Key trends in human capital

Human Resource Services Saratoga Figure 17: The top 15 Countries by proportion of R&D in the global 1250 Number of larger companies† Companies R&D Decreasing Country R&D R&D as % sales Growth 1yr Growth 4yr* Increasing R&D (or Static) R&D or static 1. US £103.0bn 4.4% 8.2% 15.4% 9% 127 30 2. Japan £48.7bn 3.8% 4.0% 5.9% 13% 58 19 3. Germany £25.7bn 4.1% 2.0% -2.2% 29% 23 6 4. France £14.2bn 2.6% 5.7% 11.0% 31% 16 5 5. UK £13.1bn 1.8% 8.2% 7.2% 39% 12 7 6. Switzerland £8.9bn 6.8% 9.2% 21.6% 60% 7 1 7. S. Korea £7.1bn 3.9% 11.9% 22.4% 64% 6 4 8. Netherlands £5.6bn 6.4% 0.2% -0.9% 58% 4 3 9. Sweden £4.2bn 4.6% 13.7% 1.9% 61% 6 1 10. Finland £3.2bn 5.0% 3.6% 5.7% 86% 1 0 11. Italy £2.9bn 2.2% 11.5% 27.4% 72% 2 2 12. Taiwan £2.6bn 2.5% 30.5% 44.6% 16% 7 0 13. Canada £2.3bn 4.0% 6.0% -0.5% 57% 2 2 14. Denmark £1.4bn 4.4% 15.6% 11.5% 47% 2 0 15. Belgium £1.1bn 4.2% 20.9% 21.8% 65% 3 0 *2005/2006 compared to the average of the 4 previous years † Where R&D is > £100m Source: www.innovation.gov.uk/rd_scoreboard/downloads/2006_rd_scoreboard_analysis.pdf • Innovation is seen as a major contributing different approaches may be needed e.g. the factor in an organisation’s sustainable identification of ‘pivotal employees’ in talent performance. For the mature economies management, the concept of shared leadership, it will become a critical competitive tool in identifying more focussed points of engagement the years ahead. For successful innovation for employees, and building innovation both supporting infrastructure (e.g. R&D requirements into all employee roles. There is investment) and shared experimentation no evidence that the time gap between (e.g. people creativity) is required. organisational needs and human capital policy development or performance is closing. And Human capital driver implications this is not necessarily down to the inability of All the above four trends are critical to human HR to adapt. It is perhaps more related to the capital’s impact upon an organisation’s market place changing so rapidly that it is performance. It is of concern, therefore, that impossible to move people related policies at none are considered to be developing at the the same pace. There is therefore always likely pace or effectiveness required to meet the to be some form of misalignment between demands of the rapidly changing market place. HR functional perceived performance and Human capital practitioners need to take a hard organisational/people expectations in the future. new look at these trends, and strongly question Those organisations that are best able to current systems and processes that appear to manage that misalignment most successfully be producing limited results. It is possible that will be the real winners. Key trends in human capital 23

Human Resource Services PwC Saratoga 3. Human capital foundations Demographic trends worldwide indicate that populations are living longer. Many of the mature economies, as well as China, due to its ‘one child’ policy*, are facing a growing ageing and dependent population. They are reliant upon a decreasing pool of working age employees to produce the levels of output and wealth creation required to provide adequate support systems. In parallel with demographic issues, workforce in western economies in the immediate years diversity is providing both opportunities and ahead, requiring higher levels of marketable challenges, potentially providing additional outputs or wealth creation if living standards resource at all organisational levels as ethnic, are to be preserved. They are, however, gender, disability and now age barriers are not alone. Japan, China, Taiwan and Russia broken down. However, the subject of will also witness an increase in dependent workforce diversity is also producing intense population levels over the next decade, social pressures in regions at times of rising providing some warning signs that demographic unemployment, or where there is any sense of issues cannot be ignored when inward social exclusion. Added to such movements, investment is being considered. Western Europe is facing demands for greater Statistics Canada predict that more workers levels of work-life balance, suggesting that will leave the country’s labour force than enter domesticity should be balanced against work it over the next 10 years as the latest Census demands, potentially reducing hours of work figures showed the threat of an ageing attendance at a time when higher levels of population with over 3.7% of the population productivity are demanded. The topic of being 80 years or older. Almost 80% of ‘Wellness’ is now also emerging as a new respondents to a survey carried out by the employment phenomenon in the work place. Conference Board of Canada (2006), indicated that their organisation will face problems Demographic trends relating to an ageing workforce over the next Demographic trends are important for human five years, with 23% admitting they are already capital practitioners for two major reasons. experiencing difficulties. In the first instance, workforce availability is essential for economic sustainability and However in the medium term, the working growth. Secondly, longer life expectancy populations in Western Europe and the US will and the growth of dependent groups require encounter increasing competition from C&E working populations and labour forces to Europe, India, China and others, with forecasts produce the increased wealth needed to that such nations will have working populations support general living standards. Higher life growing by some 2.5% per annum plus over the expectancy in existing mature economies is next five years. For example, India has a more evidence of economic success. At the same favourable demographic profile with nearly 60% time, it is a threat to the future sustainability of its population between the ages of 15-59 and of that success. more than half below the age of 25.10 The US and Western Europe in 2007 have Coupled with the low cost of the skill base in working age populations i.e. populations these economies plus the development of more between 15 and 64, at about 67% of the mature skill sets, the challenges facing western total population. In the next five years, it is economies are high. One favoured solution is uncertain in which direction this trend will that mature economies should make use of the move. Some analysts see a slow decline by resources plentifully available in the developing some 1% per annum, whilst others point countries, whilst engineering the innovative to population growth, delayed retirement solutions within their own boundaries on which dates and immigration leading to a marginal the younger economies are likely to continue to increase over the same period. rely. Such a solution relies upon a determined drive to maintain the stated lead they have in What is certain, however, is that the percentage professional services, global management, of the population in Europe and the US aged innovatory development and advanced skill 65 and over is likely to increase by between sets. To do so would appear to require a higher 4-12% over the same period. There will almost level of corporate performance than is apparent certainly be a growing dependent population at this time. 10 Source: Nasscom, Knowledge professionals in India, press information note, 2006 24 Key trends in human capital * Currently under review

Human Resource Services Saratoga 1.8 1.5 1.2 US 0.9 UK Western Europe 0.6 C&E Europe 0.3 All Europe 0 10,000 0.0 UK C&E Europe Western Europe All Europe US 2002 2003 2004 2005 2006 Figure 18: Working age population 2005-2050 (15-64 yrs) % of total population that are between 15-64 years 80 70 60 50 40 30 20 10 0 Argentina China Czech Italy South Republic Germany India Japan Sweden Turkey US Korea 2005 2007 2010 2020 2050 Source: International Database – US Census Bureau 2007 China Banking Czech Republic Germany Retail and leisure India Italy Insurance Japan Turkey Life and pensions US South Korea Public Sector Sweden Argentina 0 10 20 30 40 50 60 70 80 90 Other finance Services Chemicals Key trends in human capital 25 Telecoms

0 Human Resource Services 200,000 PwC Saratoga 30 0 160,000 23.9% 0 19.7% US 20 18 120,000 Hours 0 UK Western Europe 80,000 10 0 C&E Europe All Europe 40,000 0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 0 2003 2004 2 0 0 2003 2004 2005 2006 2003 2004 2005 2006 UK All Europe UK All Europe C&E Europe US C&E Europe US Western Europe Western Europe Figure 19: Population growth rate 2007 China Czech Republic Germany India 23.9% Italy 19.7% 20.6% 18.3% Japan Turkey US South Korea Sweden Argentina 2003 2004 2005 2006 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 weden Turkey US Source: Central Intelligence Agency, 2007 Figure 20: Birth rate 2007 Top 100 companies China reporting Czech Republic First-time reporters Banking Germany this year India Average reports per Retail and leisure Italy company to date Japan Insurance Average pages Turkey UK Use of external Life and pensions US assurance South Korea In accordance Public Sector Sweden with GRI Argentina Other finance 0 2 0 5 10 15 20 25Europe 1.8 Services Source: Central Intelligence Agency, 2007 Chemicals mpanies reporting Telecoms 26 Key trends in human capital reporters this year IT and electronics

70 Human Resource Services 60 Saratoga 50 40 30 20 10 0 Argentina China Czech Italy South Republic Germany India Japan Sweden Turkey US Korea 2005 2007 2010 2020 2050 Figure 21: Total life expectancy at birth 2007 ‘60% of organisations China recognise that effective Banking Czech Republic diversity management Germany makes business sense’ Retail and leisure India Italy Insurance Japan Turkey Life and pensions US South Korea Public Sector Sweden Argentina 0 10 20 30 40 50 60 70 80 90 Other finance Source: Central Intelligence Agency, 2007 Services Whatever solution organisations decide upon, throughout the world are hedged in by cultural it is anticipated that HR executives should be and legislative regimens that influence their Chemicals prepared for the challenge of recruiting overseas behaviour. However, there is increasing talent or foreign immigrants, developing evidence that the developing commercial need cross-culture management programs and to acquire and maintain an essential skill and Telecoms competitive HR platforms. This is already the talent base is having a greater influence upon case in Switzerland where nearly one-third of selection and development decisions. the population is foreign. IT and electronics Organisations need to consider developing a strategy that takes into account the impact of Diversity trends workforce diversity and equality on their industry Utilities Diversity is a critical global social issue at this and direct organisation. This can include those time. It traditionally covers disability, ethnicity aspects related to employment and human and gender but importantly is beginning to capital management (such as recruitment, include age discrimination and immigration Eng/Mfg retention and talent management), and also issues. The agenda is expanding further. For increasingly, integrating workforce diversity and example, in the UK recent changes in legislative equality thinking into marketing, customer and social change will now include sexual 0 relationship management, procurement, and the orientation, faith and religious belief, and those wider corporate social responsibility agenda. % Tota with caring responsibilities. With such broad PwC Saratoga continues to focus its metric work % Fem considerations and additional issues such as the drive for increased work-life balance, diversity upon gender diversity as this currently provides % Fem and equality, it is a subject that affects all of us. the most readily available source of data from This is reinforced by the CIPDs Barometer of HR employers. It would be dangerous to suggest Trends and Prospects (2008) which showed that that gender diversity policies in any organisation 60% of organisations recognise that effective would reflect similar organisational behaviours diversity management makes business sense. towards other diversity issues. However, it is considered reasonable to suggest that Banking Overall it is considered that employers should5.4% progressive gender diversity actions may reflect have only one prime objective – to employ10.1% Insurance the a balanced diversity people mind-set overall, people who will provide the highest level of plus of course a determined approach to a Finance 4.7% added value to the organisation. It is of course a meritocratic and inclusive working environment. Healthcare simplistic statement to make and employers 20.2% Chemicals 5.1% Key trends in human capital 27 Eng/Mfg 11.9% IT & Electronics 7.2%

China Human Resource Services Czech Republic PwC Saratoga Germany India Italy Japan Turkey US South Korea Sweden Argentina South -0.2 0.0 0.2 0.4 0.6 0.8 dia Italy Japan Sweden Turkey US Korea 20 2050 ‘62% of CEOs feel their Figure 22: European database, gender diversity by sector companies treat men and women equally, but Banking achieving diversity is a much greater challenge Retail and leisure than most expect’ Insurance Life and pensions Public Sector 60 70 80 90 Other finance Services Chemicals Telecoms IT and electronics Utilities Eng/Mfg 0 10 20 30 40 50 60 % Total female employees % Female (Management) % Female (Professional) Source: PwC Saratoga data 28 Key trends in human capital

Human Resource Services Saratoga The data for overall gender diversity from 2003 to 2006 demonstrates a trend increase rising more pragmatic need to muster all the talent available to maintain a competitive and ‘In the future, with the from 39.2% in 2003 to 40.5% in 2006, a rise of 3.3%. At the same time, the overall level sustainable business. The instinct for business survival may in the end be a greater driving increasing struggles in the number of professional posts held by force than endemic prejudice, resulting in higher to find talent, we can women rose from 32.0% to 40.2%, and the corresponding number of managerial posts rose levels of immigrant employment, less age and ethnic discrimination and less gender distortion. expect to see more open from 25.0% to 29.4%. As indicated previously, the presence of women in management and In the future, with the increasing struggles to organisation structures professional positions differs markedly across find talent, we can expect to see more open organisation structures with diversity levels to with diversity levels to sectors reflecting similar disparities for women employed at other levels. Women appear to be reflect this. The PwC 11th Global CEO Survey reflect this’ shows that larger US organisations see fishing making a real representational impact in sectors from a wider talent pool as a prime solution to such as retail and leisure, banking, life and skills shortages. pensions, and public services. In sectors such as chemicals, engineering and manufacturing, utilities etc. the advance is less marked and in Work-life balance trends some instances regressive (see figure 22). It is The debate around work-life balance has clear however that in many major sectors intensified since the last Key trends report. managerial/professional female presence is Western Europe, influenced by the European being seriously felt and the glass ceiling in Community, is the prime forum for the these sectors is being rapidly shattered. debate, with major nations now questioning PwC’s 10th Global CEO Survey showed that whether well established work-life balance 62% of CEOs feel their companies treat men and polices are compatible with competitive women equally, but achieving diversity is a much business performance. greater challenge than most expect. For the The challenges from the BRICs plus C&E value of diversity to be realised, people must be Europe suggest that these regions will attract able to reconcile and discuss their differences. increasing foreign direct investment and Additionally, an annual survey of women in the productivity levels as a result of lower human boardroom in the 100 FTSE index conducted by capital costs and their flexible people policies. Cranfield School of Management says that one The UK remains an attractive inward investment in five new appointments to FTSE 100 boards in location for some major corporates because 2006 went to a woman, raising the number held they have opted out of some of the social by women to 123 – one in nine. legislation of the European Community. Moreover, the US has an outstanding There has, according to the same report, productivity level to-date and appears to be less been a surge of more than 40% in the number positively oriented towards work-life balance. of women holding jobs on the executive committees that are responsible for running It is argued by some that limitation of working companies on a day to day basis, which are hours, employment protection rights, high levels often the incubators for future board members. of maternity and paternity leave and minimum For example, 80% of Taiwan’s companies have wage legislation, all have a debilitating effect women in senior positions, which is an increase upon competitive people performance, of 13% since 2004. Some 29% of senior especially when that competition is coming positions are staffed by women in Taiwan.11 from regions without these legislative requirements. The debates within France at this This growth in female presence in the higher time, the threatened withdrawal actions of some echelons of organisational life, may be less major German corporates, the straits of the reflective of the realisation that gender Italian economy are all indicators of socially discrimination has little place in a meritocratic benign economies coming to terms with the and inclusive working environment, than the world of globalisation. 11 Source: International Business Report: survey of women in senior management, Grant Thornton, 2007 Key trends in human capital 29

Human Resource Services PwC Saratoga ‘Whether there is any There are of course counter arguments. A PwC survey in 2007 of circa 2500 graduates, An emerging trend across an increasingly wide range of organisations (size and sector) direct relationship Managing tomorrow’s people, highlighted that 75% of respondents think that workplace is to look beyond absence management to investment in broader wellness programmes – between high levels of flexibility will not exist; they believe they will typically around core components of health & productivity and high be working formal office hours. safety, managing ill health and prevention & promotion. Recent publications such as Working A further example shows that South Korean work-life balance after workers have the longest working hours in the Towards Wellness – Accelerating the prevention of chronic disease by the World Economic other elements, like world. The OECD reports the average working hours by a South Korean to be circa 2,300 Forum, in cooperation with PwC, call for business to become more involved in health good management, have hours per year. This is around 300 hours longer promotion and chronic disease prevention. than the next longest working country, Greece, been accounted for, is and 34% more hours than the average of the A more holistic approach can also yield direct results in the workplace; for example in still a subject for debate’ United States. A typical workweek in South Korea is 44 hours or longer. Before legislation recent research by PwC (as yet unpublished) companies report reduced absence and which virtually abolished the six-day work week reductions in staff turnover as the most common in large corporations, South Korea was the only benefits from corporate wellness programmes. country in the OECD that worked Saturdays. From the commercial metrics section figure 11, Key trend messages it is possible to see that GDP growth per hour in South Korea is negative at -0.81 compared • Almost without exception, the population of to 1.86 in the US. the world is living longer. This implies firstly that people will be active for longer, but What continues to remain unclear is whether an secondly that a higher level of dependency enlightened employment policy yields higher will become a global feature. levels of performance and whether commercially • Working age population levels will probably successful organisations are more able to invest increase in the new economies over the in family-friendly policies. Whether there is any short term, but will decline in the mature direct relationship between high levels of economies. Generically, it will require higher productivity and high work-life balance after levels of wealth creation in most economies other elements, like good management, have to support a sustained standard of living for been accounted for, is still a subject for debate. an increasingly dependent population. ‘Wellness’ trends • The pressures imposed on organisations to produce or serve more effectively with Some 9 out of 10 respondents to the UK’s fewer traditional resources available, will 2007 Chartered Institute of Personnel and probably have a major beneficial effect Development (CIPD) annual survey identified upon diversity employment. Employers employee absence as a significant or very may be encouraged into positive diversity significant cost to the business. It is easy to see actions by legislation, but will respond why. Staff costs can be as much as 50 to 80% much more confidently if they consider their of overall organisation expenditure, and even business interests require the use of talent ‘average’ absence levels represent a significant and skill from increasingly diverse sources. cost. In addition to the cost of covering and managing absent staff there are also the costs • Working age people movements across of damaged productivity and performance, national frontiers will become a significant reduced staff retention due to over-stretched issue. Freedom of movement will ease staff, and damage to the brand when service skill and employment shortages, but will levels suffer. exacerbate social resistance in times and in regions where there is rising unemployment or social deprivation. 30 Key trends in human capital

Human Resource Services Saratoga • Work-life social pressures will largely affect Western Europe. The drive for higher levels of domesticity is gaining momentum whilst the competitive market position appears to require greater work focus. The reconciliation of work-life balance and higher levels of productivity is a troublesome problem for many Western European economies. It is an issue which many emerging economies appear not to encounter or appreciate yet. Human capital foundation implications Human capital practitioners need to be acutely aware of the demographic movements which are occurring in any of their regions of operation. Critical skills could be lost within short time periods if outdated organisational or state retirement policies were to be implemented or accepted. All policies incurring the unnecessary loss of talent should be questioned. In a commercial environment which is searching for talent, discrimination of any type other than ‘All policies incurring capability must be challenged. Human capital practitioners need increasingly to be focussed the unnecessary only upon selecting and employing those loss of talent should people, whoever they may be, who can best deliver the results required. be questioned’ Positive work-life policies should be scrutinised to ensure they are in the best productive interests of the organisation. It should never be accepted that just because a policy is popular that it is automatically right. Key trends in human capital 31

Human Resource Services PwC Saratoga 4. Human capital futures Corporate reporting trends promoted by either governments or authoritative bodies, producing a series of measures which The need for greater transparency in corporate will form the basis of a common auditable reporting has emerged as a major business reporting system. This will also require issue. A particular example of this is in Taiwan organisations to sort out their own data systems where a new law, effective from 1 January 2008, to ensure there is logical integration of data stipulates that employee equity incentive will be across and between functions e.g. from finance, defined as expense, and accordingly employee sales, and human capital. This will also help stock options will adopt fair market value. to facilitate both co-joined reports that Current accounting policy prohibits deducting shareholders and others will understand and employee equity incentive as expense or loss. a fusion of data that will significantly ease the The new law therefore addresses the need to task of major decision making. make corporate financial reporting more transparent to the public and to make The quality of information is still seriously accounting policy compatible with global queried by analysts and other commentators, principles.12 suggesting that there remains a strong tendency for the majority of trading organisations to Disagreements are rife about the value to produce ineffectual generalised statements, shareholders and other key stakeholders on the making it almost impossible for readers to one hand, and the bureaucracy and resource draw any firm conclusions. The Association of diversion on the other. Driven by a number of Chartered Certified Accountants argues strongly corporate scandals and followed inevitably by for “a common language of valuation so the regulatory initiatives, there has been a growing financial implications come through clearly to demand for non-financial information to be the global markets”. As the business climate provided by trading organisations. Increasingly, changes, companies are being driven to stakeholders from shareholders to suppliers re-evaluate their success criteria. As PwC’s through to employees, expect boards to provide 10th Global CEO Survey states, “The findings them with unambiguous data and insights upon of the survey support Michael Porter and Mark performance, ethical stances, environmental Kramer’s contention that, to gain competitive policies and the threats and opportunities that advantage, management need to align their are likely to be encountered. This growing strategies to factor in the needs of a broader demand and awareness should have a major set of stakeholders including employees and impact upon the type of human capital society”. To do so, a company needs to keep information that is made available to an these stakeholders on board. They need to be organisation’s stakeholders. well informed and assured of the company’s The number of organisations now producing reputation in the market place, since a positive extra financial information either through their reputation will create real value and reduce risk, normal reporting systems or through separate whilst a poor or lost reputation can lead to the corporate social reports is increasing annually. downfall of an enterprise. Within Europe, 90% of the top companies are PwC’s ValueReporting initiative is firmly based now reporting on this. However, there are still on the view that companies need to promote large differences in practices; Europe is likely their reputation to sustain themselves, and a to cover broad subjects, and produce longer key requirement is “to present their stakeholders reports than the US.13 with a coherent framework of information that The majority of CSR reports remain short of allows the reader to assess corporate – and not hard measurable comparative information. It is merely financial – performance.” Perhaps for generally considered unlikely that higher levels the first time there is emerging a compelling of quality corporate reporting will be achieved business argument for greater disciplined until a definitive agenda of “best practice” is transparent reporting. 12 Source: A War for High Talent, Department of Statistics, Ministry of the Interior 2007 32 Key trends in human capital 13 Source: Reporting in Context 2006

China Human Resource Services Czech Republic Saratoga Germany India Italy Japan Turkey UK US South Korea Sweden Argentina 0 5 10 15 20 0 1.2 1.4 1.6 1.8 Figure 23: Corporate reporting ‘As the business Top 100 companies climate changes, reporting companies are being First-time reporters driven to re-evaluate this year their success criteria’ Average reports per company to date Average pages Use of external assurance In accordance with GRI 0 20 40 60 80 100 Europe Rest of World US Source: Reporting in Context, 2006 Risk management trends agile in identifying the sources of risks, their likelihood of occurrence, and the impact they More than 60% of people surveyed thought risk can have on the organisation both financially management processes would be more effective and in broader sustainability terms. if they were embedded into lines of business.14 Human capital management has hardly Risk management is now becoming an been strong in any of these requirements established organisational discipline. Identifying historically and therefore requires a significant risk, assessing its likely impact, establishing transformation towards disciplined mitigating options, deciding optimal actions measurement of activity both in its operational and implementing decisions is becoming part performance and its development of policy. of the normal agenda for all lines of business. Pension funding, compensation policies, People risk is now seen as one of the top 10 work/life processes, recruitment and retention threats to an organisation’s earnings.15 This is activities are all key areas requiring higher hardly surprising since people constitute a levels of risk assessment for the future. significant level of both the cost base and the proactive actions of organisations. However, integrating risk management and human capital management is a major challenge for most organisations. Effective people risk management challenges organisations to be 14 and 15: Source: Creating Value: Effective risk management in financial services, PwC, 2007 Key trends in human capital 33

Human Resource Services PwC Saratoga ‘Human capital Key trend messages Human capital futures implications • A number of new disciplines are Corporate reporting is beginning to be viewed practitioners will need to developing in organisational life both to as a commercial necessity. This has direct have available systems deal with an increasing public scrutiny of organisational activity and the attendant implications for human capital reporting, since the same arguments which apply to the need and databases that will repercussions of certain investment and operational decisions. for a lexicon of common language and metrics for CSR and other non-financial reporting provide the essential • Corporate reporting is rapidly progressing clearly applies to its human capital counter-part. information which beyond financials towards a presentation of its sustainability strategies. Inevitably this The Accounting for People Report of 2003 and the proposed OFR (Operating and Financial increasingly demanding is leading to greater emphasis upon human Review) implied the need for an extension of human capital reporting by companies on a capital as an organisational contributor. stakeholders will require’ Stakeholders are therefore likely to demand disciplined basis. They fell short of proposing increasingly detailed information upon the the common metrics or measures that should costs and values of people employment. be applied. However, there is little doubt that the demand for comprehensible, comparative, • As human capital becomes increasingly disciplined data on human capital as a normal recognised as a major organisational asset, part of an organisation’s periodic reporting the assessment of its costs and its value systems will be a growing shareholder will become the subject of intense scrutiny requirement. It is the view of PwC that those from its internal and external stakeholders. companies that are early in the field will The application of risk management enhance their reputation in the market place. disciplines will be stringently applied to an asset which could comprise up to 80% Human capital practitioners will need to have of the organisational cost base and be its available systems and databases that will major revenue contributor.16 provide the essential information which increasingly demanding stakeholders will require. Figure 24: Metric definitions There will be an increasing requirement for human capital practitioners to demonstrate the Metric Definition commercial disciplines of other business functions, translating policies and actions into Wealth created per FTE (Profit after tax – 10% shareholders equity)/total FTEs the financial language that investment Profit per FTE Profit before tax/total FTEs communities can understand. Revenue per FTE Revenue/total FTEs Established generic metrics Cost per FTE Total costs/total FTEs Over the past two decades, our experts have Human capital ROI (Revenue – non-wage costs)/(total compensation + benefits) developed a range of metrics with agreed global definitions to form the basis of human Remuneration/revenue (Total compensation + benefits)/total revenue capital reporting for companies, enabling Remuneration/cost (Total compensation + benefits)/total costs shareholders and others to form an objective Absence rate All absent days/FTE workdays appreciation of a company’s human capital profile and its strategic positioning. Some of Resignation rate Resignations/headcount these recommended generic human capital Acceptance rate Job offers accepted/job offers made metrics are listed to the left. Training hours per FTE FTE Learning & development hours/FTEs 34 Key trends in human capital 16 Source: 2007 UK Annual Survey, Chartered Institute of Personnel and Development (CIPD)

Human Resource Services Saratoga 5. The HR function HR function trends The size and cost of the function per FTE is now declining throughout the majority of The recognised importance of human capital Europe (99:1 across Europe in 2006 compared to an organisation’s overall performance with 88:1 in 2005), with HR costs falling from would suggest that the HR function should 1,200 euros per FTE in 2005 to 1,017 euros be evidentially moving into an increasingly per FTE in 2006. Whereas the US appears influential position in the business environment. to remain similar in terms of size and show a There are worrying signs to the contrary. slight increase in costs. The PwC’s 11th Global CEO Survey highlighted that two-thirds of CEOs want recruitment, motivation and development improved. But they give HR a low vote of confidence. Figure 25: HR function metrics 2002-2006 % change % change % change 04 and 05 05 and 06 02 and 06 2002 2003 2004 2005 2006 median median median FTEs per HR department FTE UK 105 95 96 82 90 -14.6% 9.8% -14.3% C&E Europe 99 95 91 99 93 8.8% -6.1% -6.1% Western Europe 96 90 92 87 90 -5.4% 3.4% -6.3% All 96 90 92 88 99 -4.3% 12.5% 3.1% US NA 88 88 90 89 2.3% -1.1% NA HR department costs per FTE (€) UK 1,275 1,258 1,073 1,245 1,110 16.0% -10.8% -12.9% C&E Europe 383 382 524 402 386 -23.3% -3.9% 0.9% Western Europe 1,213 1,181 1,143 1,205 1,110 5.4% -7.9% -8.5% All 1,116 1,135 1,108 1,200 1,017 8.3% -15.3% -8.9% US NA 1,392 1,385 1,280 1,502 -7.6% 17.3% NA HR managers and professionals (percentage of total dept FTEs) UK 59.8 58.0 63.1 60.9 65.7 -3.5% 7.9% 9.9% C&E Europe 53.0 60.0 62.6 64.4 45.8 2.9% -28.9% -13.6% Western Europe 61.8 62.1 65.6 63.6 66.7 -3.0% 4.9% 7.9% All 60.0 62.1 64.5 63.2 66.7 -2.0% 5.5% 11.2% Source: PwC Saratoga data Key trends in human capital 35

Human Resource Services PwC Saratoga ‘The trend for HR to In a sense, such movements probably indicate the success of specific outsourcing activity and The movement towards the establishment of HR business partners (working alongside key demonstrate its value of shared service centres, originally created to absorb a range of HR transactional activity and stakeholders and executives to deliver a joined up organisational response team) does not with robust metrics is to reduce the cost of its operation. However, for appear overall to be producing the results many HR executives the strategic purpose intended, although there are some exceptions. closely linked to the behind such a transfer of workload was to Recent findings from PwC Saratoga’s Voice of need for HR to better provide the opportunity to raise the status of HR and increase its influence in the boardroom. the Customer survey (a tool that measures and benchmarks the perception of employee and manage its reputation’ There is little evidence of this happening. executive populations on the performance of HR) suggests that other executives do not The numbers of HR managers and professionals highly rate the contributions of their business in HR functions across Europe are reported to partners, and there seems to be a significant stand at 66.7% in 2006 against 63.2% in 2005 gap in the perceived level of effectiveness of HR – a rise of 5.5% against a fall in numbers of delivery between employees and executives. 12.5% in the HR function overall, indicating a real reduction of 7%. In addition, the number of HR directors on the main boards of the top 100 FTSE companies is now down from six to five. Figure 26: Voice of the customer qualitative survey example 2007 The charts below represent the benchmark median level of effectiveness on a scale of 1 – 6 for example Employees perceptions on HR’s service across some key areas: Market median HR Service effectiveness How satisfied are you that the appropriately skilled and experienced 3.9 person is available to meet your requirements? How satisfied are you with quality of the advice you receive? 3.9 How confident are you that your enquiries will be dealt with to 3.7 your satisfaction? How satisfied are you that the person(s) fully understand what you want? 4.0 How satisfied are you that you are treated as a valued customer? 3.9 HR partnering Market median How effective is your HR contact in: effectiveness Challenging and influencing your thinking on key business issues? 2.8 Showing you what the return on investment would be for all 2.2 people-related actions that you take? Delivering consistently to your expectations? 3.3 Producing innovative and practical solutions to the people problems 3.0 that you face? Driving people change within your organisation? 2.9 3.6+ 3.1 – 3.5 3.0 and below Key effectiveness 6 Achieves excellence 5 Exceeds requirements 4 Consistently, totally effective 3 Generally effective i.e. not consistently 2 Marginally effective 1 Not at all effective Source: PwC Saratoga data 36 Key trends in human capital

Human Resource Services Saratoga There is increasing evidence that CEOs and other senior executives, recognising the The line ‘For HR to become • engaging managers in the development importance of human capital, are assuming more active roles in activities that historically of policies and processes; more highly regarded were regarded as the precinct of the HR • encouraging dialogue; and internally, all function. Moreover, it is becoming clearer that HR services are increasingly provided by a • communicating things in the simplest way possible – in the language of line managers. communications must range of disciplines external to the HR function. Those who can deliver best in class finance Employees be of a standard that and other functional services can also provide • an employment brand that integrates the justifies this’ best in class HR. With such movements taking employee experience; place it is hardly surprising that the need for a separate HR function, as distinct from an • using the language of employees; and integrated management discipline, becomes • open, adult communication that achieves more questionable. consistency while allowing line managers to interpret locally. HR reputation trends The trend for HR to demonstrate its value with Linked to the trend for the HR function to robust metrics is closely linked to the need for become more accountable in measuring the HR to better manage its reputation. value it adds to the business, is the need to manage reputation with its key stakeholders: For HR to become more highly regarded the board, the line and employees. In order internally, all communications must be of a to do this well, the HR function needs to be standard which justifies this. The perception proactively managed and a clear agreement, of HR is determined by how it represents itself understanding and communication of the through communications, both written and role of HR in the organisation is also required. verbal; HR is therefore responsible for its own The HR function needs to focus on the PR through internal communications. impact and effectiveness of their communications. Furthermore, the role of Shared services trends Head of HR communication is becoming more The move to HR shared services (HRSS) common but often fails to address the strategic continues. The objectives of lower cost, importance of communication to HR. business process excellence, higher advisory consistency and centralised human capital What is needed is a comprehensive approach feedback to energise policy development, all that encompasses the following elements: continue to provide the rationale for this shift. The board The rise in the number of HRSS operations • demonstrating through quantitative has been accompanied by a greater number and qualitative measures the strategic of HR processes being delivered via the value of HR; HRSS model. On average, participant organisations in PwC Saratoga’s HRSS network • taking a business perspective and now report information on seven key HR communicating succinctly and in processes, with recruitment administration, business language; and payroll administration and employee data • talking about the right things. maintenance information topping the list. Key trends in human capital 37

Human Resource Services PwC Saratoga ‘Although the overall Since the last Key trends report, more positive results are emerging on performance across We continue to see organisations that have outsourced HR services to third parties are HR outsourcing market a series of measures within HRSS contact centres. However HR functions are struggling consistently struggling to drive both cost efficiency and service effectiveness. Of those is continuing to grow, we to balance this with an effective business organisations that reported higher performance have observed that due partnering service to executives. when utilising outsourcers, they ensured documented service level agreements were Figure 27 shows significant performance to the competitiveness improvements across a series of measures in place, with fixed penalties where these are not met. Although the overall HR outsourcing in the marketplace within HRSS contact centres. We have seen a drop in the level of outsourcing in alignment market is continuing to grow, we have observed that due to the competitiveness in the and requirements of with the performance improvements. marketplace and requirements of organisations, organisations, the overall Overall we are seeing that many mature (over four years) HR shared services organisation the overall price for third parties across HR services has decreased over the past year. price for third parties show significant cost efficiencies within key This research may provide some of the reasons transactional processes such as payroll and why organisations are struggling to balance across HR services data maintenance when compared to less driving lower cost but requiring a higher level has decreased over the mature (less than four years) HRSS operations. service from outsourcers. Finally, the gap between the successful HRSS past year’ However, within processes such as recruitment and learning and development, it appears operations and others continues to widen. smaller efficiencies are being gained following Levels of technology and automation continue the initial payback. According to a new study to be a significant driver in delivering high levels from PwC Saratoga, Czech Republic, shared of service and lower cost. It appears many service centres (SSCs) spend on average organisations operate and implement HRSS almost CZK 40,000 per employee on with above-average levels of complexity recruitment, while the market average is CZK within processes (e.g. the number of payrolls, 17,000. Furthermore, almost a fifth of new SSCs employment contracts and different pension hires leave during their trial period, whereas schemes) and this is having a significant impact market trends show that it is usual for about on cost efficiency and the perceived level of 5% of employees to leave during this time. service effectiveness, which is often crucial for newly implemented HRSS operations. Figure 27: HRSS metrics Europe The table below shows significant performance improvements across a series of measures within HRSS Contact Centres. As it can be seen we have seen a drop in the level of outsourcing in alignment with the performance improvements. 2006 2007 Calls dealt with per day per contact centre FTE (no.) 22 26 Contact centre costs per FTE (£) £42.90 £31.50 % calls answered on first contact (%) 73.3% 75.5% Average answer time (secs) 27 23 Outsource rate (%) 29.0% 14.0% Source: PwC Saratoga data 38 Key trends in human capital

Human Resource Services Saratoga The balance between a “high and low touch” HR function implications service is clearly having an impact on the These are times of real challenge for the efficiencies being gained. This highlights the HR function. At a time when human capital is need for HR to understand what its customers being recognised as key to an organisation’s (both employees and executives) want and sustainability, the reputation of the function is need from it, to ensure the right level of service at low ebb. Its future is in doubt. is being delivered. To arrest the decline in the status and the Despite the welcome improvements in results reputation of the function, there is little and indications that many organisations are doubt that there is an urgent need to embrace now gaining measurable benefit from their broader business disciplines, adopting a HRSS investment, the observations made in our genuine strategy to relate measurable people earlier report appear to continue to be highly policies to the goals of the organisation. In a relevant. The introduction of shared services sense, the environment is extremely positive. requires expert business deliberation, ensuring CEOs appear to realise now that people count. that purposes and targeted outcomes are fully For the HR function to have real impact, it must evaluated, costs are realistically assessed, time appreciate what people counting means. to delivery established, and intended impacts measured against actual results. Key trend messages • There is a decrease in both the size and cost of HR functions across Europe & US • There is little evidence to show that the influence of HR has increased in the Boardroom – there has been limited strategic penetration, CEOs have a low opinion upon its contribution and the number of HRDs on the main board of the FTSE 100 in the UK has further decreased to five • The role of the HR business partner is not rated highly by executives • HR services are increasingly provided by a range of disciplines external to the HR function • The success of HRSS depends upon a strategic appreciation of its purpose and a regular and full evaluation of its value. Key trends in human capital 39

Human Resource Services PwC Saratoga Conclusion Once again, we hope that many of the trends outlined in this document will lead to constructive discussion and debate, and we urge readers who have detected other trends, or who simply have a different perspective on the views we have expressed, to make contact with us. Our details are listed on page 44. We believe that discussion and debate lead to breakthrough. PricewaterhouseCoopers continues to search for breakthroughs in human capital thinking. It is our view that, in the immediate years ahead, new thinking and innovative action around human capital contribution will be the best guarantee that people’s lives will become meaningful and complete, and that an organisation’s human capital will be given the respect, consideration and status that it deserves. Richard Phelps, Global lead partner, Human Resource Management, PricewaterhouseCoopers. 40 Key trends in human capital

Human Resource Services Saratoga Acknowledgements We would like to thank our consulting Jon Burton, Kyu-Han Kwon, Lukas Bolcek, colleagues across the globe for their continued Martina Stepinova, Katarína Smrčeková, Natalie support researching PwC Saratoga information Widmer, Nicoleta Ciocarlan, Oana Munteanu, and other relevant human capital data. Sabrina Liu, Su-Ho Yae, Urs Klinger, Oliver In particular, we would like to thank Maurice Britnell, Ben De Haldevang, Mary Defraites, Phelps, Ting Kwok, Sarah Foley, Neil Patel, Angela Mohtashemi, Ian Tomlinson-Roe, Sunny Khan, Steve Taylor, Jonathan Moses, Anthony Bruce, Lee Newbold, Tina Hallett, Mark Woodhouse, Steve Hollander, Alexander Michelle Radcliffe, David Baty, Jon Andrews, Durr, Eliina Martin, Anand Parsan, Graham Heather Richardson, Christopher Box, Carey, Enrique Babis, Henning Stocks, Andrew Smith and Janet Davies. Hiroshi Masukura, Janet Gasper Chowdhury, Key trends in human capital 41

Human Resource Services PwC Saratoga References The data in this report is drawn from PricewaterhouseCoopers Saratoga databases and other PwC publications. Additional sources of information are detailed below. PwC publications Collaborate and Innovate: a New World of Sourcing, PwC, 2007 Outsourcing Comes of Age: The rise of collaborative partnering, PwC, 2007 Managing Tomorrow’s People, PwC HRS, 2007 10th Annual Global CEO Survey, PwC Global, 2007 11th Annual Global CEO Survey, PwC Global, 2008 Talent and Impact, PwC, 2007 HR Shared Service Index findings, PwC, 2006 Providing Better Clarity, PwC, 2007 Measuring the Value, PwC, 2006 Creating Value: Effective risk management in financial services, PwC, 2007 Pivotal Employees, PwC Saratoga US, 2006 Report of Convergys Employee Care, University of Michigan and Pwc Saratoga, 2004 42 Key trends in human capital

Human Resource Services Saratoga External references A Barometer of HR Trends and Prospects, CIPD, 2008 Employee Engagement, A Review of Current Research and Annual survey, its Implications, Conference Board, 2006 CIPD, 2007 Nasscom, International Business Report: Knowledge professionals in India, survey of women in senior management, Press information note, 2006 Grant Thornton Global Demographics, “Tomorrow’s People” – managing The Conference Board of Canada, 2006 talent in a diverse world, Management Consultancies Association, 2007 International Database, US Census Bureau, 2007 Joseph Bower, Harvard Business Review, 2007 The growth and future of Knowledge Process Offshoring industry, The top 800 UK & 1250 Global Evalueserve, 2007 companies by R&D investment, DTI R&D Scorecard, 2005 Reporting in Context, Context, 2006 www.innovation.gov.uk/rd_scoreboard/ downloads/2006_rd_scoreboard_analysis.pdf Accounting for People Report, 2007 UK Government Task Force on Human Capital Management, 2003 Recruitment: When engagement doesn’t lead to a wedding, A War for High Talent, Richard Donkin, Financial Times, 2007 Department of Statistics, Ministry of Interior, 2007 ‘How Engaged are British Employees?’, CIPD, 2006 UK Global Comparisons Leadership Forecast, CIPD, 2005-2006 Employee engagement, Professor Stephen Ackroyd of Lancaster The Conference Board and Business School, adapted from original research Groningen Growth and Development Centre, by Stephen Ackroyd and Paul Thompson Total Economy Database, 2008 Central Intelligence Agency, The Female FTSE Report, www.cia.gov, 2007 Cranfield School of Management, 2006 Key trends in human capital 43

Contact us About PwC Saratoga Further information PwC Saratoga’s human capital measurement and To find out more about this report or to discuss benchmarking business has the most extensive any of the issues raised, please telephone or database of HR metrics available. We work with send an e-mail to one of the contacts listed organisations to evaluate their human capital below, or visit www.saratogapwc.co.uk. and its contribution to organisational profitability. We offer a range of quantitative and qualitative UK global tools which help organisations to identify the Richard Phelps strategic impact of their people, as well as to +44 (0) 20 7804 7044 measure and benchmark themselves against richard.phelps@uk.pwc.com peers in the marketplace in order to identify areas of risk or efficiency, and to evidence best US global practice and innovation. This enables HR leaders to gain a clearer understanding of the Patrick Meyer effectiveness of their function, and of the HR +1 (312) 298 6229 programmes that they implement. This also patrick.meyer@us.pwc.com enables the HR function to demonstrate the impact that it is having on the business’ Europe success, and to ensure and evidence the Henk Van Cappelle alignment of HR activities to business strategy. +31 20 568 62 10 henk.van.cappelle@nl.pwc.com Africa John White +27 (11) 797 4153 john.d.white@za.pwc.com South and Central America Olga Colpo +55 (11) 3674 3699 olga.colpo@br.pwc.com Asia Pacific Mark Gilbraith +86 (0) 21 6123 2898 mark.gilbraith@cn.pwc.com Debra Eckersley +61 (0) 409 922104 debra.eckersley@au.pwc.com Japan Shinya Yamamoto +81 (0) 35251 9960 shinya.s.yamamoto@jp.pwc.com If you would like further copies of this publication, please contact: Alex Moir +44 (0) 20 7212 3942 For press enquiries, please contact: Andrew Smith +44 (0) 20 7804 7119

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pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. © 2008 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. Designed by studioec4 19188 (02/08)

Key Trends 2008 Human Capital

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